ACIT, Circle-14(1), Hyd, Hyderabad V. Kranthi Constructions, Hyd, Hyderabad

ITA 1254/HYD/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2624 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 5 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 28-12-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 03-11-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SUMAN MALIK
• Keywords: Reopening of assessment; Rejection of books of accounts; Revised return
• Section: 143(3); 133A; 147; 145; 148

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B, RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 1232/HYD/2015 ASSESSMENT YEAR: 2010-11 M/S KRANTHI CONSTRUCTIONS , HYDERABAD. PAN AADFK9452F VS. DCIT, CIRCLE - 14(1), HYDERABAD. (APPELLANT) (RESPONDENT) ITA NO. 1254/HYD/2015 ASSESSMENT YEAR: 2010-11 ACIT, CIRCLE - 14(1), HYDERABAD. VS. M/S KRANTHI CONSTRUCTIONS, HYDERABAD. PAN AADFK9452F (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K.C. DEVDAS REVENUE BY : SMT SUMAN MALIK DATE OF HEARING: 23 - 03 - 2017 DATE OF PRONOUNCEMENT: 21 - 0 4 - 2017 O R D E R PER B. RAMAKOTAIAH, A.M.: THESE ARE THE CROSS APPEALS BY ASSESSEE AND REVENUE AGAINST THE ORDERS OF CIT(A)-VI, HYDERABAD DATED 25-08-2015. 2. BRIEFLY STATED, ASSESSEE IS A CIVIL CONTRACTOR. ASSESSMENT WAS COMPLETED U/S 143(3) OF THE IT ACT ON 31-03-2013 AND THE INCOME WAS DETERMINED AT RS. 1,72,49,785/- BY REJECTING THE BOOKS OF ACCOUNTS. THE NET PROFIT WAS ESTIMATED @ 8% ON THE MAIN CONTRACT RECEIPTS AND 3% ON THE SUB-CONTRACT RECEIPTS BESIDES MAKING THE ADDITION ON ACCOUNT OF INTEREST INCOME. SUBSEQUENTLY, THE A.O NOTICED THAT WHILE COMPLETING THE ASSESSMENT, CERTAIN OTHER CREDITS BROUGHT TO PROFIT AND LOSS 2 ITA NOS. 1232&1254/HYD/2015 M/S KRANTHI CONSTRUCTIONS, HYD. ACCOUNT WERE NOT BROUGHT TO TAX, ACCORDINGLY HE HAS RECORDED REASONS FOR REOPENING AND ISSUED A NOTICE U/S 148 OF THE IT ACT ON 17-02-2014. IN THE RE-ASSESSMENT PROCEEDINGS, THE A.O MADE AN ADDITION OF CREDIT BALANCES AND DEFERRED TAX LIABILITY COMPRISING OF RS. 2,70,33,778/- AND RS. 56,99,728/-. 3. THESE TWO ADDITIONS WERE SUBJECT MATTER OF APPEAL BEFORE LD. CIT(A). EVEN THOUGH ASSESSEE HAS RAISED AN ISSUE OF REOPENING OF ASSESSMENT U/S 147 OF THE IT ACT, AFTER COMPLETION OF SCRUTINY ASSESSMENT U/S 143(3) OF THE IT ACT, THE SAME WAS NOT PRESSED BEFORE LD. CIT(A). ON THE ISSUE OF ADDITION TOWARDS DEFERRED TAX REVENUE AND CREDITORS WRITTEN BACK, LD. CIT(A) DELETED THE ADDITION TOWARDS DIFFERED TAX LIABILITY AND CONFIRMED THE 50% OF THE CREDIT BALANCES BY STATING AS UNDER: 07.0 SUBMISSIONS OF THE ASSESSEE HAVE BEEN CONSIDERED. THE ASSESSING OFFICER ESTIMATED THE NET PROFIT OUT OF THE CONTRACTUAL RECEIPTS OUT OF THE PREVIOUS YEAR UNDER CONSIDERATION. THE AMOUNT CREDITED TO THE P&L A/C WHICH ARE THE SUBJECT MATTER OF THE ADDITIONS UNDER DISPUTE DID NOT FORM PART OF SUCH RECEIPT. HENCE, THE CONTENTION THAT THE PROFIT ESTIMATED BY THE ASSESSING OFFICER WOULD TAKE CARE OF THOSE AMOUNTS IS NOT ACCEPTABLE. IT HAS HOWEVER TO BE SEEN WHETHER THESE ADDITIONS ARE JUSTIFIED ON MERITS. 07.1 IN CASE THE DEFERRED TAX LIABILITY RELATES TO INCOME-TAX, IT WOULD NOT BE TREATED AS INCOME BECAUSE INCOME TAX IS NOT ALLOWABLE AS EXPENDITURE. THE ASSESSEE CREDITED THE AMOUNT IN P&L A/C AND THE REDUCED THE SAME IN ITS COMPUTATION OF INCOME. THUS IT HAD STAKED THE CLAIM THAT THE AMOUNT WAS NOT IN THE NATURE OF INCOME. THIS INFORMATION WAS AVAILABLE BEFORE THE ASSESSING OFFICER WHILE MAKING THE ORIGINAL ASSESSMENT. IF HE DOUBTED THE CORRECTNESS OF THE CLAIM, HE COULD HAVE EXAMINED THE SAME AND, IF HE COULD GIVE A FINDING, OTHERWISE, HE COULD HAVE TREATED THE SAME AS INCOME. HENCE, IT IS NOT A CASE WHERE THE ASSESSEE HAD FAILED TO DISCLOSE THE MATERIAL FACTS. IF IN THE CURRENT ASSESSMENT, NOTHING HAS BEEN BROUGHT ON RECORD TO SHOW THAT THE ASSESSMENT WAS IN THE NATURE OF INCOME SUCH ADDITION WOULD NOT MEET THE REQUIREMENT OF LAW. IT IS THEREFORE HELD THAT THE ADDITION WAS NOT JUSTIFIED AND HENCE IS DELETED. 0.72 CREDITORS WRITTEN BACK: THIS ITEM IS DIFFERENT BECAUSE THE AMOUNT WAS CREDITED TO P&L A/C BUT WAS NOT REDUCED IN THE COMPUTATION. THUS, IT WAS ADMITTEDLY IN THE NATURE OF INCOME. AS DISCUSSED ABOVE, SINCE THE PROFIT ESTIMATED BY THE ASSESSEE RELATED ONLY TO THE CONTRACTUAL RECEIPT FOR THE PREVIOUS YEAR UNDER CONSIDERATION, THE INCOME WAS NOT PART OF THAT. IT IS HOWEVER RELEVANT THAT BOOKS RESULTS FOR THE LAST 2 ASSESSMENT YEARS HAD BEEN REJECTED AND PROFIT HAD BEEN ADMITTED. HENCE, THE SUNDRY CREDITORS WHICH HAD APPEARED IN THE ASSESSEE'S ACCOUNTS RELATING TO THE TRANSACTIONS 3 ITA NOS. 1232&1254/HYD/2015 M/S KRANTHI CONSTRUCTIONS, HYD. RECORDED IN THE BOOKS OF ACCOUNT FOR THOSE 2 ASSESSMENT YEARS AND WHICH WERE CREDITED BACK IN THE ACCOUNTS FOR THE PREVIOUS YEAR UNDER CONSIDERATION SHOULD NOT BE ADDED TO INCOME SEPARATELY. IN CASE THEY HOWEVER RELATED TO EARLIER ASSESSMENT YEARS, WHEN ASSESSEE'S BOOK RESULTS HAD BEEN ACCEPTED, SUCH WRITE BACK WOULD AMOUNT TO INCOME FOR THE PREVIOUS YEAR UNDER CONSIDERATION. THE RELEVANT FACTS ARE NOT AVAILABLE ON RECORD. THE ASSESSEE HAS ALSO EXPRESSED ITS INABILITY TO FURNISH THE RELEVANT INFORMATION ON THE GROUND IT IS NOT IN THE POSITION TO FURNISH CONFIRMATIONS OR SATISFACTORY EVIDENCES OR RECONCILIATIONS TO SUPPORT VARIOUS ITEMS REFLECTED EITHER ON CREDIT OR DEBIT SIDE OF P&L A/C AND LIABILITIES OF THE BALANCE SHEET FOR THE A.YS. 2008-09 TO 2011- 12. 07.3 IN THIS SITUATION, THE ESTIMATE IS THE ONLY WAY OUT. THE INTEREST OF JUSTICE WOULD BE MET IF 50% OF THE AMOUNT IS ESTIMATED TO BE RELATING TO THE SUNDRY CREDITORS APPEARING IN THE ACCOUNT DURING A.Y. 2008-09 AND 2009-10 AND THE REST IN YEARS EARLIER TO IT. ACCORDINGLY, THE ADDITION IS REDUCED TO RS.1.35 CRORES. 3.1 REVENUE IS AGGRIEVED ON THE DELETION OF DEFERRED TAX LIABILITY AND 50% OF THE CREDIT BALANCES, WHEREAS ASSESSEE IS AGGRIEVED ON THE CONFIRMATION OF CREDIT BALANCES TO AN EXTENT OF 50%. 4. LD. COUNSEL SUBMITTED THAT INCOME OF THIS YEAR IN THE ORIGINAL SCRUTINY ASSESSMENT WAS ESTIMATED AND IN THE PECULIAR FACTS OF THE CASE, THERE CANNOT BE ANY ADDITION TO THE ASSESSED INCOME. HE REFERRED TO THE ASSESSMENT ORDER, WHEREIN A.O HAS GIVEN THE FOLLOWING FINDINGS AT THE TIME OF COMPLETION OF ASSESSMENT ITSELF. 2. IN THIS CASE, SURVEY UNDER SEC. 133A WAS CONDUCTED ON 01.10.2010 DURING THE COURSE OF WHICH THE BOOKS OF ACCOUNT AND OTHER MATERIAL WERE IMPOUNDED. THE ASSESSMENT IN THE CASE OF THE ASSESSEE FIRM FOR A.Y. 2008-09 WAS COMPLETED ON 31.12.2010 DETERMINING THE TAXABLE INCOME AT RS.25,96,69,474/- AS AGAINST THE INCOME RETURNED AT RS.3,95,78,725/-. THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A)-IV, HYDERABAD DURING THE COURSE OF WHICH THE ASSESSEE SUBMITTED THAT THE BOOKS OF ACCOUNT WERE NOT MAINTAINED PROPERLY AND THERE WERE SEVERAL MISTAKES IN BOOKING THE TURNOVERS AND OTHER MISTAKES WERE COMMITTED BY THEIR STAFF WHICH RESULTED IN MAKING HUGE ADDITIONS IN THE ASSESSMENT COMPLETED FOR A.Y. 200809. AT THIS STAGE, THE ASSESSEE CAME UP WITH THE PROPOSAL TO CORRECT ALL THE ACCOUNTS RIGHT FROM THE A.Y .. 2008-09 AND TO OFFER THE NET TAXABLE INCOME @ 8% ON THE WORKS EXECUTED BY THE ASSESSEE AS MAIN 4 ITA NOS. 1232&1254/HYD/2015 M/S KRANTHI CONSTRUCTIONS, HYD. CONTRACTOR ON THE CORRECTED TURNOVERS. CONSIDERING THE PROPOSAL OF THE ASSESSEE TO OFFER THE INCOME @ 8% FOR THE A.YRS. 2008-09 TO 2011-12 ON THE CORRECTED TURNOVERS, THE CIT(A)-IV, HYDERABAD DISPOSED OFF THE APPEAL FOR A.Y.2008-09 WITH A DIRECTION TO ESTIMATE THE NET TAXABLE INCOME OF THE ASSESSEE @ 8% ON THE MAIN CONTRACT WORKS EXECUTED BY THE ASSESSEE. ACCORDINGLY, THE ASSESSEE REVISED ITS RETURNS FOR THE A.YRS. 2009-10 & 2010-11 AND FILED THE REGULAR RETURN FOR A.Y. 2011- 12 ADMITTING THE TAXABLE INCOME AT 8% ON THE MAIN CONTRACTS. IT IS ALSO SEEN THAT THE ASSESSEE CARRIED OUT CERTAIN WORKS AS A SUB- CONTRACTOR AND THE PROFIT ON SUCH SUB-CONTRACT WORKS IS DETERMINED ON THE BASIS OF THE SUB-CONTRACT AGREEMENTS ENTERED INTO BY THE ASSESSEE. ACCORDINGLY, THE ASSESSEE REVISED ITS TURNOVERS FOR THE AYRS. 2008-09 TO 201011 AND ADMITTED THE INCOME ON THE BASIS OF THE CORRECTED TURNOVERS IN THE ORIGINAL RETURNS AS WELL AS IN THE REVISED RETURNS IS TABLED BELOW: (FIGURES IN RUPEES) A.Y. TURNOVER AS PER ROI INCOME RETURNED IN ORIGINAL ROI TURNOVER AS PER REVISED ROI INCOME ADMITTED IN REVISED ROI INCOME ASSESSED 2008-09 61,52,53,507 3,95,78,730 36,49,53,638 4,95,75,430 4,98,75,433 2009-10 54,09,05,550 3,72,11,513 32,46,29,252 4,35,87,190 4,35,87,190 2010-11 20,63,21,103 1,49,17,850 36,87,20,860 1,54,28,240 PENDING 2011-12 NOT FILED 55,54,25,420 3,87,45,480 PENDING HOWEVER, WHILE COMPLETING THE ASSESSMENTS FOR THE A.YRS. 2008-09 AND 200910, THE TURNOVERS ADMITTED BY THE ASSESSEE AS PER REVISED RETURNS WERE NOT ACCEPTED AND THE ASSESSMENTS WERE COMPLETED ESTIMATING THE INCOME ON THE BASIS OF TURNOVERS ADMITTED IN THE ORIGINAL RETURNS. 3. AS DETAILED AND ABOVE, FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE ADMITTED THE TURNOVER IN THE ORIGINAL RETURN AT RS.20,63,21,L03/AND ADMITTED THE TURNOVER AT RS.36,87,20,860/- IN THE REVISED RETURN FILED. THE ADMISSION OF HIGHER TURNOVER IN THE REVISED RETURN RESULTED DUE TO THE REASON THAT FOR THE AYRS. 2008-09 & 2009-10, THE ASSESSEE REDUCED THE TURNOVERS IN THE REVISED RETURNS WHICH RESULTED IN ADMITING OF HIGHER TURNOVER FOR THE YEAR UNDER CONSIDERATION. AS DISCUSSED EARLIER, AFTER VERIFICATION OF THE BOOKS OF ACCOUNTS, TDS CERTIFICATES ETC., THE TURNOVERS ADMITTED BY THE ASSESSEE IN THE REVISED RETURNS FOR THE A. YRS. 2008-09 AND 2009-10 WERE NOT ACCEPTED AND THE ASSESSMENTS WERE COMPLETED. IN VIEW OF THE ABOVE, THE TURNOVER ADMITTED BY THE ASSESSEE IN THE REVISED RETURN AT RS.36,87,20,860/IS NOT CONSIDERED AND THE ASSESSMENT IS COMPLETED ON THE BASIS OF THE TURNOVER ADMITTED IN THE ORIGINAL RETURN AT RS.20,63,21,103/-. 4. HOWEVER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE BOOKS OF ACCOUNTS, TDS CERTIFICATES, FORM 26AS ETC., WERE EXAMINED. ON EXAMINATION, THE TOTAL CONTRACT RECEIPTS FOR THE YEAR UNDER CONSIDERATION IS FOUND TO BE AT RS.21,25,23,737/- AS AGAINST THE 5 ITA NOS. 1232&1254/HYD/2015 M/S KRANTHI CONSTRUCTIONS, HYD. RECEIPTS ADMITTED BY THE ASSESSEE AT RS.20,63,21,L03/-. OUT OF THE TOTAL RECEIPTS OF RS.21,25,23,737/-, RECEIPTS TO THE TUNE OF RS.13,74,63,344/- WERE MAIN CONTRACT RECEIPTS ON THE CONTRACT WORKS EXECUTED BY THE ASSESSEE AS PRINCIPAL CONTRACTOR AND RECEIPTS TO THE TUNE OF RS.7,50,60,393/- WERE ON THE SUB-CONTRACTS EXECUTED BY THE ASSESSEE AS A SUB-CONTRACTOR. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE ASSESSEE AS DISCUSSED IN THE PRECEDING PARAGRAPH, THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE ARE NOT REFLECTING THE TRUE AND CORRECT AFFAIRS OF THE BUSINESS. THEREFORE, THE BOOKS OF ACCOUNT ARE REJECTED UNDER SEC. 145 OF THE ACT AND THE PROFIT IS ESTIMATED @ 8% ON THE MAIN CONTRACT RECEIPTS AND @ 3% ON THE SUB- CONTRACT RECEIPTS. ACCORDINGLY, THE NET PROFIT ON THE MAIN CONTRACT RECEIPTS OF RS.21,25,2.3,737/- IS ESTIMATED @ 8% AND ON THE SUB- CONTRACT RECEIPTS OF RS.7,50,60,393/- IS ESTIMATED @ 3%. THE NET PROFIT @ 3% ON THE SUB-CONTRACT RECEIPTS IS ESTIMATED ON THE BASIS OF THE SUB-CONTRACT AGREEMENTS SUBMITTED BY THE AR OF THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE NET PROFIT ON THE TOTAL CONTRACT WORKS IS ACCORDINGLY DETERMINED AS UNDER: ESTIMATION OF NET PROFIT ON THE MAIN CONTRACT RECEIPTS OF RS.13, 74,63,344/- @ 8% RS.1,09,97,067 ESTIMATION OF NET PROFIT ON THE SUB-CONTRACT RECEIPTS OF RS.7,50,60,393 @ 3% RS. 22,51,812 NET INCOME ON CONTRACT WORKS RS.1,32,48,879 4. FROM THE PROFIT & LOSS ACCOUNT, IT IS NOTICED THAT THE ASSESSEE HAS ADMITTED OTHER INCOME OF RS. 40,00,906/-. SINCE THE BOOKS OF ACCOUNT OF THE ASSESSEE ARE REJECTED AND PROFIT IS ESTIMATED ON THE CONTRACT WORKS, THE OTHER INCOME ADMITTED IN THE PROFIT & LOSS ACCOUNT IS SEPARATELY ADDED TO THE TOTAL INCOME. ACCORDINGLY, THE ASSESSMENT FOR A.Y. 2010-11 IS COMPLETED AS UNDER: NET INCOME ON CONTRACT WORKS ESTIMATED AS DISCUSSED ABOVE. RS.1,32,48,879 ADD: OTHER INCOME ADMITTED IN THE P&L ACCOUNT RS. 40,00,906 TOTAL TAXABLE INCOME RS.1,72,49,785 4.1 IT WAS FURTHER SUBMITTED THAT IN VIEW OF THE ESTIMATION OF INCOME IN EARLIER YEARS, THE BOOKS OF ACCOUNTS REJECTED CANNOT BE RELIED AGAIN FOR MAKING THE ADDITIONS. THE COUNSEL RELIED ON THE DECISION OF THE HONBLE AP & TELANGANA HIGH COURT IN THE 6 ITA NOS. 1232&1254/HYD/2015 M/S KRANTHI CONSTRUCTIONS, HYD. CASE OF INDWELL CONSTRUCTIONS VS. CIT, 232 ITR 776 372 ITR 77 (A) 372(144) FOR THE PROPOSITION THAT NO DISALLOWANCES OUT OF BOOKS CANNOT BE MADE WHEN BOOKS OF ACCOUNTS ARE REJECTED. 5. LD. DR HOWEVER STATED THAT ASSESSEE HAS NOT SUBMITTED ANY DETAILS THEREFORE ADDITION OF CREDIT BALANCES ARE WARRANTED. 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE AUTHORITIES. WE ARE UNABLE TO UNDERSTAND HOW LD. CIT(A) CAN CONFIRM ONLY 50% OF THE CREDIT BALANCE IN THE ABSENCES OF DETAILS. IT IS GENERALLY ADMITTED THAT CREDIT BALANCES WRITTEN BACK WOULD ALWAYS PERTAIN TO EARLIER ASSESSMENT YEARS. THEREFORE, CONFIRMING 50% DOES NOT ARISE AND CIT(A) SHOULD HAVE ALLOWED 100% OF THE CREDIT BALANCES WRITTEN BACK. IT IS ALSO SEEN THAT A.O HAS CLEARLY EXAMINED THE BOOKS OF ACCOUNTS AND THE TURNOVERS INVOLVED CONSEQUENT TO THE SURVEY PROCEEDINGS. NOT ONLY IN THIS YEAR BUT ALSO IN EARLIER YEARS, HE HAS REJECTED THE REVISED TURNOVERS AND ACCEPTED THE ORIGINAL TURNOVERS AS DECLARED BY ASSESSEE WHILE RESORTING ESTIMATION OF INCOME. CONSEQUENTLY, OTHER ADJUSTMENTS MADE FROM THE BOOKS OF ACCOUNTS, LIKE CREDIT BALANCES WRITTEN BACK WHICH SHOULD BE INCOME U/S 41(1) OF THE IT ACT, CANNOT BE BROUGHT TO TAX, UNLESS THEY ARE OUTSIDE THE COMPUTATION OF INCOME UNDER THE HEAD BUSINESS. IT IS ALSO SEEN THAT A.O HAS BROUGHT AN AMOUNT OF RS. 40,00,490/- TO TAX IN THE ORIGINAL ASSESSMENT, BEING THE INCOMES NOT CONNECTED WITH THE ACTIVITY OF BUSINESS OF SUB-CONTRACTS. IN VIEW OF THAT, REOPENING OF ASSESSMENT ON THESE ISSUES ITSELF CANNOT BE UPHELD BUT ASSESSEE CHOSE NOT TO QUESTION THAT, THEREFORE ISSUE OF REOPENING OF THE ASSESSMENT HAS BECOME FINAL. 7. IN THE CASE OF INDWELL CONSTRUCTIONS VS CIT 232 ITR 776, THE JURISDICTIONAL HIGH COURT HAS HELD AS UNDER: 7 ITA NOS. 1232&1254/HYD/2015 M/S KRANTHI CONSTRUCTIONS, HYD. THE PATTERN OF ASSESSMENT UNDER THE IT ACT IS GIVEN BY S. 29 WHICH STATES THAT THE INCOME FROM PROFITS AND GAINS OF BUSINESS SHALL BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SS. 30 TO 43D. SEC. 40 PROVIDES FOR CERTAIN DISALLOWANCES IN CERTAIN CASES NOTWITHSTANDING THAT THOSE AMOUNTS ARE ALLOWED GENERALLY UNDER OTHER SECTIONS. THE COMPUTATION UNDER S. 29 IS TO BE MADE UNDER S. 145 ON THE BASIS OF THE BOOKS REGULARLY MAINTAINED BY THE ASSESSEE. IF THOSE BOOKS ARE NOT CORRECT OR COMPLETE, THE ITO MAY REJECT THOSE BOOKS AND ESTIMATE THE INCOME TO THE BEST OF HIS JUDGMENT. WHEN SUCH AN ESTIMATE IS MADE IT IS IN SUBSTITUTION OF THE INCOME THAT IS TO BE COMPUTED UNDER S. 29. IN OTHER WORDS, ALL THE DEDUCTIONS WHICH ARE REFERRED TO UNDER S. 29 ARE DEEMED TO HAVE BEEN TAKEN INTO ACCOUNT WHILE MAKING SUCH AN ESTIMATE. THIS WILL ALSO MEAN THAT THE EMBARGO PLACED IN S. 40 IS ALSO TAKEN INTO ACCOUNT . NO DOUBT THERE IS BIG DIFFERENCE BETWEEN PROFIT EARNED WITH OWN CAPITAL AND PROFIT EARNED WITH BORROWED CAPITAL AND SUCH A DIFFERENCE COULD HAVE BEEN TAKEN INTO ACCOUNT BY THE ITO WHILE MAKING AN ESTIMATE. IF THE CIT HAD SET ASIDE THE ESTIMATE ON THE GROUND THAT THE VITAL FACT THAT THE BUSINESS WAS CARRIED ON WITH OWN CAPITAL AND NOT WITH BORROWED CAPITAL HAS BEEN IGNORED BY THE ITO, THERE MAY NOT HAVE BEEN ANY DIFFICULTY IN UPHOLDING THAT ORDER. BUT, WHEN HE PROPOSES TO ADD BACK AN EXACT ITEM IN THE P&L A/C, HE WAS RELYING ON THE REJECTED BOOKS WHICH HE COULD NOT DO. THERE IS ALSO A FURTHER DIFFICULTY IF S. 40 IS TO BE TAKEN INTO ACCOUNT EVEN AFTER MAKING AN ESTIMATE. WHEN THERE ARE CERTAIN OTHER DEDUCTIONS WHICH ARE TO BE DISALLOWED SUCH AS WEALTH-TAX PAYMENT IN S. 40, CAN IT BE SAID THAT AFTER MAKING AN ESTIMATE, THE WEALTH-TAX CHARGED IN THE P&L A/C SHOULD AGAIN BE ADDED BACK TO THE PROFIT. THIS EXAMPLE ILLUSTRATES HOW THE CONTENTION OF THE REVENUE, THAT S. 40(B) MAKES A DIFFERENCE IN THE SITUATION, IS UNTENABLE. THEREFORE, IT IS NOT CORRECT IN LAW TO MAKE A SEPARATE ADDITION REPRESENTING THE INTEREST AND REMUNERATION PAID TO PARTNERS, TO THE INCOME ALREADY ESTIMATED AND ASSESSED FROM CONTRACTS.MADDI SUDARSANAM OIL MILLS CO. VS. CIT (1959) 37 ITR 369 (AP) : TC 42R.1310 FOLLOWED. 5. NO DOUBT THERE IS BIG DIFFERENCE BETWEEN PROFIT EARNED WITH OWN CAPITAL AND PROFIT EARNED WITH BORROWED CAPITAL AND SUCH A DIFFERENCE COULD HAVE BEEN TAKEN INTO ACCOUNT BY THE ITO WHILE MAKING AN ESTIMATE. IF THE CIT HAD SET ASIDE THE ESTIMATE ON THE GROUND THAT THE VITAL FACT THAT THE BUSINESS WAS CARRIED ON WITH OWN CAPITAL AND NOT WITH BORROWED CAPITAL HAS BEEN IGNORED BY THE ITO, THERE MAY NOT HAVE BEEN ANY DIFFICULTY IN UPHOLDING THAT ORDER. BUT, WHEN HE PROPOSES TO ADD BACK AN EXACT ITEM IN THE P&L A/C, HE WAS RELYING ON THE REJECTED BOOKS WHICH HE COULD NOT DO AS HELD BY THE BENCH OF THIS COURT IN MADDI SUDARSANAM OIL MILLS CO. VS. CIT (SUPRA). THERE IS ALSO A FURTHER DIFFICULTY IF S. 40, AS ARGUED BY LEARNED COUNSEL, IS TO BE TAKEN INTO ACCOUNT EVEN AFTER MAKING AN ESTIMATE. WHEN THERE ARE CERTAIN OTHER DEDUCTIONS WHICH ARE TO BE DISALLOWED SUCH AS WEALTH-TAX PAYMENT IN S. 40, CAN IT BE SAID THAT AFTER MAKING AN ESTIMATE, THE WEALTH-TAX CHARGED IN THE P&L A/C SHOULD AGAIN BE ADDED BACK TO THE PROFIT. THIS EXAMPLE, ILLUSTRATES HOW THE CONTENTION OF THE REVENUE, THAT S. 40(B) MAKES A DIFFERENCE IN THE SITUATION, IS UNTENABLE. IN OUR CONSIDERED OPINION, THE ANSWER TO THE QUESTION HAS TO BE IN THE NEGATIVE AND IN FAVOUR OF THE ASSESSEE. 8 ITA NOS. 1232&1254/HYD/2015 M/S KRANTHI CONSTRUCTIONS, HYD. FOLLOWING THE PRINCIPLE LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF INDWELL CONSTRUCTIONS (SUPRA), WE ARE OF THE OPINION THAT THE ADDITION OF CREDIT BALANCES IS NOT WARRANTED. 8. COMING TO REVENUE APPEAL, REVENUE IS CONTESTING PARTIAL CONFIRMATION OF CREDIT BALANCES AND DELETION OF DEFERRED TAX PROVISION. SINCE THE ADDITION PER SE OF CREDIT BALANCES IS NOT ACCEPTED IN ASSESSEE APPEAL, QUESTION OF CONFIRMING THE PART AMOUNT DELETED BY CIT(A) DOES NOT ARISE. WITH REFERENCE TO DEFERRED TAX LIABILITY, NOTHING WAS BROUGHT ON RECORD TO DIFFER FROM THE FINDING OF CIT(A). IN VIEW OF THIS WE FIND NO MERIT IN REVENUE APPEAL. A.O IS DIRECTED TO DELETE THE 50% OF THE CREDIT BALANCES CONFIRMED BY CIT(A). 9. IN THE RESULT REVENUE APPEAL IS DISMISSED AND ASSESSEE APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 21 ST APRIL, 2017. SD/- SD/- (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED: 21 ST APRIL, 2017. KRK COPY TO:- 1) M/S KRANTHI CONSTRUCTIONS, C/O B. NARSING RAO & CO CAS PLOT NO.554. ROAD NO.92, JUBILEE HILLS, HYD-96 2) DCIT, CIRCLE 14(1); HYDERABAD. 3) ACIT, CIRCLE- 14(1), HYDERABAD 4) CIT(A) VI, HYDERABAD 5) THE PCIT-6, HYDERABAD 6) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABAD. 7) GUARD FILE